What to make of SalesForce's Q3 Churn Metrics.

Salesforce is the second biggest publicly traded SaaS company with a market cap of $231 billion.

They are big, but here at ChurnDog we are interested in retention and churn so I wanted to understand that more from their latest Q3 earnings report.

But first let’s talk about net revenue retention.

What is Net Revenue Retention

My takeaway from talking to our customers and following publicly traded software companies is that Net Revenue Retention (NRR) has emerged as a more important metric for sustaining long-term success of SaaS companies.

NRR calculates the total recurring revenue from a cohort of customers over a period, accounting for both revenue churn (downgrades and cancellations) and expansion revenue (upgrades, cross-sells, and add-ons).

A rate above 100% indicates that a company's growth from its existing customers is outpacing the revenue lost from those same customer.

For mature companies with Annual Recurring Revenue (ARR) between $15 million and $30 million, expansion revenue from existing customers now drives 40% of their total growth.

Why is NRR important?

With rising acquisition costs, mature SaaS companies are focusing away from filling the top of the funnel with new leads to cultivating and expanding the value derived from the existing customer base. Companies that can improve NRR, and achieve rates at or above 100%, are growing at double the speed of their peers.

So what does Salesforce’s retention metrics look like?

• Revenue attrition: Salesforce noted that it was Slightly above 8%” in Q3, in line with recent quarters.

• Full‑year view: According to their latest earnings reports  they expect attrition to remain consistent at slightly above 8% for FY25.

• For context: The average annual churn rate for B2B SaaS companies is approximately 26% so Salesforce’s attrition is better than most SaaS companies.

Salesforce Customer Retention Strategy

Here are some key reasons why Salesforce has great retention metrics and their strategy below point to successful cross-selling and upselling, which are crucial components of revenue retention and expansion..

• Multi-Cloud Adoption as a Retention Driver: According the CFO the top 25 deals in the quarter averaged more than five clouds each and she noted that multi-cloud customers spent more, had lower attrition rates and drove significant ARR expansion. 

• Growth in Core Products: The Q3 report and transcript highlighted the continued strength of Salesforce's foundational products. Both Sales Cloud and Service Cloud achieved double-digit growth in Q3. This sustained growth in core offerings suggests they are successfully retaining and expanding their footprint within their customer base.   

• Data Cloud and AI Adoption Rates: The adoption of Data Cloud and AI solutions, which are key to the company's expansion strategy, was a major focus.

The strategy taken by Salesforce highlights the importance of taking a multi-product strategy so that SaaS companies can upsell their current customers and expand their revenue even if their new customer acquisition may have slowed down.